Types of expenses you can deduct for a second home
Several expenses can be deducted from a second property, particularly if it is designated as an investment property, i.e. it is intended to generate income for you.
Expenses such as interest charges, utilities, property taxes, repairs and renovations can be deducted, according to the Canada Revenue Agency (CRA). Some expenses, called current expenses, are only deductible in the year you incur them. And others, called capital expenditures, are deductible in future years.
Current expenditure and capital expenditure
Current expenses are the costs you incur to maintain the property, such as minor repairs and maintenance, as well as interest, property taxes, professional fees (legal, accounting, accounting, property management and auditing ), advertising, etc.
Capital expenditures are those that improve the market value of the asset, extend its life, or adapt it to an entirely different use. For example, renovation costs. A capital expenditure will have to be divided very precisely and applied over a few tax years in the form of capital cost allowance (CCA).
You do not have to claim the maximum amount of CCA in a given year. You can claim any amount, from $0 to the maximum allowed for the year. If you do not have to pay income tax for the year, you may not want to claim CCA.
The only cost you cannot deduct from your gross rental income is the cost of buying the property. However, you can add it to the cost of your purchase to be deducted when selling your property. This will impact how capital gains or losses are calculated and taxed when selling your second property.
Claim a loss of rent
Another thing to note is that all of these deductions are based on the assumption that you are generating income, or at least attempting to generate income, from the property. It is possible to claim a rental loss if your expenses exceed your rental income. This loss of rent can be deducted from other sources of income. Be sure to check that expenses are properly categorized, calculated and provable.
Where there is no rental income, it is still possible to deduct the cost of maintaining the property, but keep in mind that the property must be vacant and available on the market to be rented out.